Genentech's Legacy: The Challenge of Healthcare Innovation

US healthcare is highly regulated and politically sensitive, but also economically important. Approximately one-fifth of US dollars are spent on the sector. The amount of money involved and the complexity of the sector provide many opportunities for problem solving and technological advancements, but startups targeting this industry have much less room for error. Although there are challenges, implementing healthcare solutions can be personally and professionally rewarding. Industry pioneer Genentech is a good example. After developing an oncology drug that saved countless lives, the company was acquired by Roche for $46.8 billion.

In 1975, Bob Swanson, a 29-year-old unemployed venture capitalist, made a surprise call to biochemist Herb Boyer looking for insight into the emerging field of gene editing.

Boyer offered him a 10-minute chat at a bar near the campus of the University of California, San Francisco, where he was an assistant professor, and the two went on to co-found Genentech, a biotech icon known for creating the biotech industry and commercializing research, growth-focused venture capital, and setting the standard for health care spinouts.

Nearly 50 years later, Swanson and Boyer's meeting is the stuff of Silicon Valley legend, not because it started a trend, but because it was so unusual.

Health care is an important and economically expanding sector, but it has a mixed reputation for innovation: None of the so-called “Magnificent Seven” technology companies that have dominated the stock market in recent years primarily compete in an industry that accounts for about a fifth of U.S. gross domestic product.

The health care sector is highly regulated and politically charged, said Chris Serra, CEO of ArcWeb Technologies, a software developer that has specialised in developing healthcare products in that thorny and sensitive field.

Though the company has implemented remote work during the pandemic, Serra lives in Philadelphia, where he has built a reputation and network by bringing modern approaches to old systems. With a background in pharmaceuticals, Serra would like to see more examples like Genentech, which remains a symbol of the combination of business and expertise.

Why focus on healthcare products and spinouts?

Healthcare, which includes everything from hospitals and insurance to pharmaceutical companies, has a lot of problems worth solving. All of this could account for about 18% of U.S. GDP in 2023.

But its complexity has for years alienated investors and a broad circle of entrepreneurs, benefiting incumbents. Health care has become one of the most consolidated industries in the U.S. economy, with a handful of large providers capturing nearly 90% of total spending.

Many companies are taking action. Last month, Pittsburgh accelerator AlphaLab Health announced a $10 million revolving investment fund focused on life sciences, one of the most active areas of commercial science. Stakeholders in Maryland are working to speed up the connection between medical research and medical technology market introduction. In Philadelphia, University City Science Center is hosting healthcare entrepreneurs, and backers are hailing their success, from a reported $430 million from shares in Spark Therapeutics, spun out of the Children's Hospital of Pennsylvania, to Pennsylvania startups like Oncora Medical and Bainbridge Health.

“It might cost you $1 million to bring something to market in this space,” ArcWeb's Serra said. “You have less margin for error than in other industries, but this is so important and it affects everyone's daily life, so you have to solve the problem here.”

Bad science and misinformation kill people every day. Chris Serra Arcweb

Earlier this month, I was on the phone with a life sciences advocate who chided me for not doing enough reporting on examples of universities, health systems, and other large organizations ramping up product releases and corporate spinouts.

For decades, software has been synonymous with technology. That era is coming to an end as robotics, semiconductors, and biology re-emerge, but healthcare straddles them all and remains noticeably behind in innovation, still requiring software solutions. So it has drawn the attention of the disruptive innovators.

Serra has built his career as part of teams that bring healthcare ideas to market, where entrepreneurs and investors hope for big financial returns.

He also says he feels the work is more important than other industries because “bad science and misinformation are killing people every day.”

How do healthcare innovations move from the lab to the market?

There are two main ways innovation in healthcare comes about: from new research and old problems.

Genentech was founded on emerging science that Boyer helped develop as an assistant professor. Before Spark Therapeutics was sold for $4.8 billion, co-founder Jeff Marrazzo was stationed at the hospital as a consultant when the company's core innovation was deemed economically viable. In these cases, the new research was transferred to a newly formed private company that brought it to market.

The other big avenue is when industry players identify existing problems that can be solved, which is an area in which Ceras Arcweb specializes.

In the wake of a major health care data breach in 2021, patient advocacy group CARIN Alliance asked Arcweb to release a UX guide detailing best practices for consumer app developers that handle patient information. It's one of 200 Arcweb projects across 100 clients, and one that Cera cites as an example of the efficiencies and protections the software can provide for healthcare.

Although software is less invasive than medical devices, large healthcare organizations are still lagging behind in modernizing their technology stacks.

Serra explained that conservative lawyers at large companies have little incentive to approve software tools, which makes innovation difficult.

That’s why it’s becoming popular to take your ideas and turn them into new startup businesses. What advice would Cera give to first-time healthcare entrepreneurs?

This can get complicated. [as youre] You'll have to deal with family, friends and skeptics who will tell you to stay, he says. Quitting as soon as possible is generally a good strategy.

In 2009, Swiss healthcare conglomerate Roche bought Genentech for $46.8 billion. The company's blockbuster cancer drugs have saved lives and made many people a lot of money. Few healthcare innovations leave a business legacy that lasts for generations; most aim to generate lasting profits.

Healthcare is much harder than other sectors — you can't just force your way into these companies, it takes a well-thought-out, coordinated plan, Serra said — but you can have an impact in healthcare like you can't anywhere else.

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